Baby boomers, inheritance and contested wills
Sarah was travelling overseas when emails started arriving, describing the motorbikes, boats and luxury cruise holidays her younger brother had been buying back in Melbourne. She had settled her father into a nursing home before the trip and, knowing her brother had no savings but a power of attorney over her father, she was suspicious. A visit to the bank on her return confirmed it – $700,000 of her father’s money was gone.
Experts predict $10 trillion worldwide will be transferred in the next two decades from aged parents to their baby boomer children. It is a huge intergenerational transfer of wealth, and it is also the object of a growing impatience. In the past decade, the number of people contesting wills has increased sevenfold. So, too, has elder abuse in which legal apparatus are exploited to get at inheritance before parents are actually dead. The chief culprits are boomers.
As Bruce Dulley, a Brisbane family lawyer with 40 years’ experience, puts it: “The number of children accessing their inheritance early has grown exponentially in the last 10 to 15 years and with it a legal industry happy to service people largely motivated by greed. Add to the mix [the fact that] whatever is in a will can now be challenged through family provision that enables beneficiaries to go to court with evidence they deserve more money than they were given or alternately family members paying lawyers large sums to challenge wills in the Supreme Court… Family members now use every means possible to get the assets before the person dies.”
Stage one is the family home. By persuading parents to nominate another “joint tenant”, the principle of survivorship is invoked, which means when one tenant dies the surviving tenant acquires the whole property automatically. As this applies to cars, shares, furniture and bank accounts, these nest eggs can be used while parents are alive then avoid any executorial hold-ups later. The same is true of superannuation with a binding death nomination, exploited by some children.
Power of attorney
Take another story. Janet had been with her husband for 16 years when his estranged daughters found he had given Janet enduring power of attorney and, more importantly, that she was coming into a $10 million inheritance. Quickly, a daughter arranged for a tribunal hearing where her father was declared mentally incompetent and put in the care of the adult guardian while Janet was stripped of her power of attorney, joint tenancy, binding superannuation death nomination and access to all of their assets, permanently. An accommodation order was issued, officially moving him to a nursing home despite him living in a perfectly good house with a caring wife and three dogs. Legal fees were paid to all the parties out of Janet and her husband’s accounts.
“Powers of attorney were never used 20 years ago,” says John Weller, a lawyer who co-founded the non-profit International Research Centre for Healthy Ageing and Longevity. “Now everyone’s getting them but unfortunately there’s no regulation and no formal register, so if someone uses it for the wrong reasons, most of the time no one’s the wiser.”
Once a parent loses mental capacity, the power of attorney is irrevocable until they die. And once the money’s gone it’s very hard to get it back. When the status quo is upset and one or both parents become sick the family must re-engage to make decisions. Unresolved emotions, childhood rivalries and anger towards parents often arise. These family wars have remained hidden until guardianship tribunals, established around 25 years ago as a legal forum to protect the wellbeing and finances of people with intellectual difficulties, emerged as the new fight club for siblings arguing about control of their inheritance.
Strangely, such state civil and administrative tribunals make binding legal decisions often based on affidavits and hearsay, opinion and innuendo from family members and interested parties sometimes motivated by greed, power, revenge. Lawyers skilled in the details of state legislation are able to railroad “informal” hearings to effectively lock up the elderly and redistribute recourses against their wishes. Appeals are almost impossible because, as decisions by the public guardian are not performed by judicial officers, they are not appellable to a higher court, and accountability goes out the door. This is little reported, as you can’t name a person under administration.
The most significant means by which miscreant offspring acquire family money, and real estate and shares, is the discretionary family trust. As Michael Bearman, a Melbourne barrister with more than 25 years’ experience in tax law, explains: “Much of the wealth of the high net individuals in this country is held through corporate structures at the bottom of discretionary trusts.”
Discretionary family trusts limit the people getting annual distributions to family members, which can include relatives within two generations, and allow trustees to decide irrevocably who gets money and who does not. Further, as the asset is owned by the trust, not the beneficiary, when a key family member dies, even if it’s your parent, the trust doesn’t form part of the individual’s estate for the executor to distribute. The resolutions to this can be incredibly messy, and the management of these trusts is largely done in secret.
Caroline was left a large trust fund by her father. When diagnosed with early onset dementia, she gave power of attorney to the youngest of her three daughters and the financial manager of the family investment company. A lawyer falsely witnessed the deed so no one explained the last clause authorising loans and gifts to “any trust of which she was a beneficiary”. The next day, Caroline signed a new will drawn up by the attorneys giving her trustees the right to purchase all of her assets and give the residuary estate to her daughter, who was also an attorney. “It was like she signed her own death sentence without knowing it,” her son-in-law says. “We went to the guardianship tribunal but we were out of our depth.”
Over the next two years Caroline’s funds were moved to a web of family trusts. Left to survive on $150 a week, dismayed at the disappearance of her money, freedom and unable to contact her old friends, Caroline wandered from her home late one night and on a warm October morning walked in front of a train. “On our daughter’s sixth birthday the police came to our door and told us she had died,” her son-in-law says. “I blame her family. All they wanted was her money.”
Matthew and his wife had a stormy marriage. Predicting their divorce, Matthew’s father created a testamentary discretionary trust for his son and grandchildren. After the father’s death the trustees – his sister and her accountant – resigned, appointing the public trustee in their place but not before paying themselves more than half a million dollars in fees and transferring most of the assets to another family trust of which Matthew was not a beneficiary. Formally requesting his new trustee take legal action, they explained legislation protected previous trustees, executors or administrators from litigation. Complaints to the ombudsman and attorney-general were routed back to a tribunal, which had no jurisdiction as Matthew wasn’t under administration. Matthew later took time off work after his child had an accident. Before this, his public trust officer changed the trust deed to refuse payment of “any unexpected medical bills”. But because of the assets in the trust, neither Medicare nor Centrelink were able to offer Matthew financial assistance.
How boomers escape state and federal laws and navigate the serious business of looking after ageing parents without resorting to early inheritance syndrome can determine whether families stay connected through the generations.
Kieran Riordan, a family mediator working in this area, says: “One way to avoid sibling disputes is creating legal documents early on that might include informal arrangements for parent-child loans or an agreement about how a live-in carer could be recompensed in the parent’s lifetime rather than in an unequal will.”
Of course cleaning up dysfunctional family relationships in advance of a crisis is better still.
Names have been changed.
This article was first published in the print edition of The Saturday Paper on Jul 9, 2016 as "Where there’s a will". Subscribe here.